The Role of Relationship Scope in Sustaining Relational Contracts in Interfirm Networks

Argyres, N., Bercovitz, J. and Zanarone, G. The Role of Relationship Scope in Sustaining Relational Contracts in Interfirm Networks, Strategic Management Journal, Forthcoming

47 Pages Posted: 24 Aug 2019

See all articles by Nicholas Argyres

Nicholas Argyres

Washington University in St. Louis

Janet Bercovitz

University of Illinois at Urbana-Champaign - College of Business

Giorgio Zanarone

CUNEF

Date Written: August 22, 2019

Abstract

A key strategic decision for many firms is the breadth of their relationships with partners. Existing theories of relationship scope are limited in that they disregard two key aspects of interfirm networks: (1) that most firms transact within networks of multiple partners, and (2) that these partnerships involve two-sided moral hazard. We develop a theory of partnership scope in interfirm networks that addresses these deficiencies. We show how, by broadening the scope of business it conducts with a partner, a firm can reduce externalities between partners and thereby sustain a self-enforcing exchange relationship with that partner (a “relational contract”) in which both parties cooperate with each other repeatedly and maximize the value created by the relationship. We discuss numerous empirical settings in which our model applies, including franchising, supply chains, and platform-based ecosystems.

Keywords: relationship scope, relational contracts, partnerships

JEL Classification: L14, M2

Suggested Citation

Argyres, Nicholas and Bercovitz, Janet and Zanarone, Giorgio, The Role of Relationship Scope in Sustaining Relational Contracts in Interfirm Networks (August 22, 2019). Argyres, N., Bercovitz, J. and Zanarone, G. The Role of Relationship Scope in Sustaining Relational Contracts in Interfirm Networks, Strategic Management Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3441189

Nicholas Argyres (Contact Author)

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

Janet Bercovitz

University of Illinois at Urbana-Champaign - College of Business ( email )

Champaign, IL 61820
United States

Giorgio Zanarone

CUNEF ( email )

Leonardo Prieto Castro 2
Madrid, Madrid 28040
Spain

HOME PAGE: http://gzanarone.cunef.edu

Register to save articles to
your library

Register

Paper statistics

Downloads
5
Abstract Views
32
PlumX Metrics